Equity release is a way for those generally over the age of 55 to raise money against the value of your home, to supplement income or to meet a capital requirement.
Equity release is essentially a mortgage available to those who own their own homes and have little or no mortgage, who may be considering a way to boost their income, assist a family member or need to raise additional funds personally. Equity release differs however from a traditional mortgage, as you borrow money against the value of your home, but pay nothing back until your home is sold – either after your death or if you go into a care home.
"With the wide range of schemes, with differing charging structures methods of calculating the maximum advance and level of flexibility to adapt to changing circumstances, it is essential to take independent financial advice from a qualified adviser before deciding how to proceed, to make sure you consider all the possibilities and implications”
As the costs of equity release are higher than a traditional mortgage, it is important that you consider this as a final option, once you have considered all other possible solutions. We will help you identify these options, which will include:
• moving to a smaller property
• claiming all the benefits you’re entitled to
• looking at other investments you have
• reducing your expenditure
• discussing your position with other members of your family
There are two main ways of releasing equity from your property, a lifetime mortgage, or home reversion plan, with differing implications which need to be considered before a decision is made:
• With a lifetime mortgage, you take out a new loan secured on your property. You do not make repayments, instead interest is rolled up to be paid when the scheme is ended. You continue to own and live in your home.
After you and your partner have died or moved into long-term care, your house is sold and the amount you borrowed, including rolled-up interest, is paid to the lender. Anything left over, after costs, passes to your, or your partner’s, estate.
• With home reversion plans, you sell all or part of your home, but you continue to live in your home. After you and your partner have died, your house is sold and the proceeds are split between the home reversion provider and your, or your partner’s, estate.
However, where you choose the home reversion route, you technically become a tenant, albeit with the right to continue living in your home rent-free for the rest of your and your partner’s life.
The amount you can receive from an equity release is based on your age, gender and health (and your partner’s). The older you are, generally the more you can raise, and it may be best to only drawdown what you need, though have the ability to release more capital from your home in the future.